Spectacular N.Y. dispute offers lessons to business partners

The New York Postreports on a series of lawsuits between a pair of Manhattan real estate moguls over money, artwork, and even an alleged plan to poison one partner with psychedelic drugs.

While they’re typically not as colourful as the one described in the Post, Stairs, associate with Shibley Righton LLP’s Windsor office, has plenty of experience with similar disputes.

“It’s relatively common for business partners or shareholders in corporations to take legal steps or engage in disparagement against each other,” says Stairs, who explains that precautionary measures taken at the outset of a commercial relationship can minimize the chances of an ugly legal fight further down the line.

For example, she says conducting a background check should be part of the due diligence process before partners jump into a business relationship.

“It's most important for people to know who they’re going into business with, including their past dealings and any issues that arose,” Stairs says. “We can do a number of different searches on people, including looking for judgments against them, to help determine if they’re the type of person you want to be doing business with.”

In addition, since disputes of some kind are almost inevitable in any business or personal relationship, she says lawyers often advise partners to formalize a dispute resolution process as part of any shareholder or partnership agreement.

“It’s always better to have a formal structure in place for dealing with disputes before you get to that point,” Stairs says.

However, she warns that each party should seek independent legal advice to ensure their interests are being protected, particularly if one person is taking the lead in organizing the business.

“When one party doesn’t necessarily know their rights and entitlements, it can be dangerous for them when there is a dispute down the road,” Stairs says. “It’s best to stay in touch with the professional advisers, such as a corporate lawyer or accountant, to keep up to date and involved with what’s happening.”

According to the Post, the New York business partners fell out over a collapsed real estate deal, and the company’s former CEO sued its president.

As well as alleging his old colleague planned to inject him with psychedelic drugs to make him look "insane,” the ex-CEO’s lawsuit claims the company president "secreted millions of assets through a complex labyrinth of associates, closely held corporations, limited liability companies, and charities in an attempt to thereby render himself insolvent so as to avoid the consequences of certain litigated matters.”

The president, meanwhile, tells the paper the allegations were manufactured to scare him off from his own lawsuit filed earlier against the CEO.

Whatever the truth of the matter, Stairs says Ontario’s Fraudulent Conveyances Act provides residents of this province with a remedy for transactions they claim were carried out fraudulently to defeat creditors.

“If the claim is proven in court, then a judge can set aside a transaction deemed to have been done in fraud,” she says.